Schneiderman to sue Wells Fargo, Bank of America for violating national mortgage settlement

by jmaloni

Press release

Tue, May 7th 2013 08:40 am

Attorney
general has documented hundreds of cases of homeowners put at risk by
banks' violations of settlement terms

Attorney
General Eric T. Schneiderman announced Monday his intention to sue
Bank of America and Wells Fargo for repeatedly violating the terms of
the National Mortgage Settlement. Signed in 2012, the settlement
required the five largest mortgage servicing banks in the U.S. to
improve their customer service practices by complying with new
mortgage servicing rules, known as the "servicing standards."
Among these are four standards dictating the timeline for banks to
process mortgage modification applications. Schneiderman's office
has documented 339 violations of those standards by Wells Fargo and
Bank of America since October 2012.

In
response to complaints from New York homeowners put at risk by these
banks' violations of the standards, Schneiderman sent a letter to
the parties that oversee the National Mortgage Settlement informing
them that he intends to sue Wells Fargo and Bank of America. This
would be the first time an attorney general will have brought a legal
enforcement claim under the auspices of the National Mortgage
Settlement.

"The
five mortgage servicers that signed the National Mortgage Settlement
are legally required to take specific, rigorous, and enforceable
steps to protect homeowners," Schneiderman
said. "Wells Fargo and Bank of America have flagrantly violated
those obligations, putting hundreds of homeowners across New York at
greater risk of foreclosure. I intend to use every tool available to
my office to hold these companies accountable under the terms of the
National Mortgage Settlement."

Last
year, Schneiderman joined 48 states, the Department of Justice and
the five largest mortgage servicers in negotiating the settlement.
The agreement includes $25 billion for 49 states and mandated forms
of consumer relief, such as mortgage modifications for at-risk
homeowners, which could include lower-interest rates, forbearance
agreements, and principal reductions.

The
settlement also includes 304 "servicing standards," which
participating servicers are required to adhere to, and which are
intended to make it easier for homeowners to seek loan modifications.
The "servicing standards" were incorporated into the
National Mortgage Settlement in order to address long-standing
complaints from consumers and advocates that servicers subject to the
settlement - Ally Financial/GMAC, JP Morgan Chase, Citibank, Bank
of America and Wells Fargo - persistently failed to provide fair
and timely services to their customers.

The
"servicing standards" include: a prohibition against dual
tracking (the practice of negotiating a loan modification with a
borrower while simultaneously pursuing foreclosure); a requirement
that every customer requesting assistance be assigned a single point
of contact; and four requirements that dictate the timeline in which
the servicers must respond to customers who are actively seeking loan
modifications.

The
settlement agreement also provides that any party to the
settlement may bring an enforcement action in U.S. District Court for
the District of Columbia following a 21-day notice to the monitoring
committee set up to enforce the agreement. During the 21-day
notification period, the committee may choose to pursue the
litigation on behalf of the party using the committee's own
authority under the settlement, or they may defer action. If the
committee defers, then the complaining party may pursue the legal
claim on their own after waiting an additional 21 days.

On
Friday, Schneiderman sent a letter to the monitor, Joseph Smith, and
to each member of the monitoring committee notifying them of his
intention to bring a legal claim if the committee does not act. The
letter includes written complaints against Bank of America and Wells
Fargo, and a significant amount of backup documentation demonstrating
the severity of the violations. Schneiderman intends to ask the court
to impose injunctive relief and to require strict compliance under
the settlement.

"We
appreciate Attorney General Schneiderman's efforts to hold the big
banks accountable to communities," said Josh
Zinner, co-director of the Neighborhood Economic Development Advocacy
Project. "The banks are systematically violating the terms
of the National Mortgage Settlement, and we hope this action by the
AG will push other state and federal regulators to draw a line in the
sand against abusive mortgage servicing practices."

Schneiderman
announced the legal action at his office. In addition to Zinner, the
attorney general was joined by New York Communities for Change,
Center for New York City Neighborhoods, Empire Justice Center, Faith
NY, South Brooklyn Legal Services, and representatives of housing
counseling agencies and legal services organizations that assisted
his office in documenting violations by the banks. Many of the
organizations that attended are grantees of the attorney general's
Homeowner Protection Program, or HOPP, a three-year, $60 million
commitment to fund housing counselors and legal services providers in
order to help homeowners avoid foreclosure. He was also joined by
homeowners who have suffered delays in the mortgage modification
process in violation of the "servicing standards."

Violations
of the timeline standards increase the likelihood that distressed
homeowners will lose their homes because the longer mortgage
modification are delayed, the deeper homeowners fall in to arrears.
Additional fees, penalties and interest accrue during periods of
delay, making a modification more difficult and pushing homeowners
closer to the brink of foreclosure.

"It
is beyond frustrating," said Megan
Faux, acting director of Legal Services NYC Brooklyn. "We
have many clients who are at risk of losing their homes to
foreclosure simply because Wells Fargo failed to properly review
complete loan modification packages sitting in their office for
months. Accountability to the 'servicing standards' is essential to
ensuring homeowners have a fair opportunity to negotiate an
affordable mortgage and ending the housing crisis. I am so grateful
to AG Schneiderman for his leadership on this issue and for taking
full advantage of this powerful enforcement tool."

The
problem is all too real for Joyce and Alton Harden who have lived in
their home in the Rockaways for 35 years, and who have been trying to
negotiate with Wells Fargo for a loan modification for the past three
years. After suffering a series of setbacks, starting with an
on-the-job injury that kept Mr. Harden out of work for several
months, and culminating with suffering massive damage to their home
when Hurricane Sandy hit, the Hardens ended up in foreclosure. The
Hardens reached out to MFY Legal Services who helped them prepare a
full loan modification package that was submitted to Wells Fargo in
early March.

Under
the settlement, Wells Fargo is required to respond to the loan
modification request within 30 days. Despite that requirement, the
Hardens did not hear a word back until late last week when Wells
Fargo wrote to ask them to start the process over again and to
resubmit a new application. Meanwhile, the Hardens remain in
foreclosure, uncertain about their future and desperate to move past
this process.

"My
husband and I are heading into our 70s and we want to move past this
and enjoy this part of our lives without this constant threat hanging
over our heads," said Joyce
Harden. "We hope Attorney General Schneiderman's actions
will finally help us settle this case and save our home."

The
339 violations received by the Office of the Attorney General allege
that Wells Fargo and Bank of America violated four "servicing
standards" relating to the timeline for processing mortgage
modifications. Specifically:

1)
Borrower must receive written acknowledgement of receipt of a loan
modification application within three business days or receipt.

2)
Servicer must notify borrower of all missing documents or
deficiencies in the application within five business days of receipt
of the borrower's initial loan modification application.

3)
Servicer must give borrower 30 days to submit missing documentation
or correct a deficiency.

4)
Servicer must make a decision on a complete loan modification
application within 30 days.

By
mid-November of last year, the Attorney General's Office received
numerous complaints from HOPP housing counselors and legal services
attorneys from across New York state alleging that Bank of America
and Wells Fargo repeatedly failed to respond to homeowners seeking
loan modification within the timeline dictated by the "servicing
standards." In response, the attorney general created a special
complaint form to monitor compliance with the four timeline-related
"servicing standards." By the end of April, Schneiderman's
office had collected complaints citing 210 violations by Wells Fargo,
and 129 violations by Bank of America.